Trust investment choices for a difficult beneficiary

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FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 3:58 pm

Gill wrote:
Mon Apr 15, 2019 2:43 pm
afan wrote:
Mon Apr 15, 2019 2:36 pm
Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
Yes, it would seem to. I would think the trust would have to buy the annuity in the name of the beneficiary as annuitant and owner unless the trust was willing to keep the ownership. That would seem to be the ideal way which would make the trust beneficiary only the annuitant.
Gill
Michael Kitces and John Olsen wrote an excellent book called the "The Advisor's Guide to Annuities" which has a discussion on different types of ownership of annuities. I need to review it to see how this could be owned. I would prefer that the beneficiary own it so that the need for a trustee is eliminated.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Gill
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Re: Trust investment choices for a difficult beneficiary

Post by Gill » Mon Apr 15, 2019 5:55 pm

FBN2014 wrote:
Mon Apr 15, 2019 3:58 pm
Gill wrote:
Mon Apr 15, 2019 2:43 pm
afan wrote:
Mon Apr 15, 2019 2:36 pm
Would such a provision prevent the trust from buying the annuity and then assigning it to the beneficiary? The trust would have to purchase the annuity in the beneficiary's name from the start.
Yes, it would seem to. I would think the trust would have to buy the annuity in the name of the beneficiary as annuitant and owner unless the trust was willing to keep the ownership. That would seem to be the ideal way which would make the trust beneficiary only the annuitant.
Gill
Michael Kitces and John Olsen wrote an excellent book called the "The Advisor's Guide to Annuities" which has a discussion on different types of ownership of annuities. I need to review it to see how this could be owned. I would prefer that the beneficiary own it so that the need for a trustee is eliminated.
I agree. I’ve concurred all along that your objective should be to terminate the trust after properly providing for the beneficiaries.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Ybsybs
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Re: Trust investment choices for a difficult beneficiary

Post by Ybsybs » Mon Apr 15, 2019 6:52 pm

If the beneficiary has an annuity purchased that somehow cannot be sold, what impact would it have on the beneficiary's eligibility for government services such as Medicaid? If he lives long enough and the money is no longer in stocks, it seems very likely that medical and living assistance services will exceed the annuity payout level.

There's the house that could be sold and the beneficiary's half spent on his care, but would that be enough? Would he then ask the OP to cover the difference?

Topic Author
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 7:16 pm

Ybsybs wrote:
Mon Apr 15, 2019 6:52 pm
If the beneficiary has an annuity purchased that somehow cannot be sold, what impact would it have on the beneficiary's eligibility for government services such as Medicaid? If he lives long enough and the money is no longer in stocks, it seems very likely that medical and living assistance services will exceed the annuity payout level. I believe that Medicaid would pay the difference between the cost of LTC and the annuity payment. However, I will check this with an elder care attorney before buying an annuity.

There's the house that could be sold and the beneficiary's half spent on his care, but would that be enough? Would he then ask the OP to cover the difference? No, because the trust would have been terminated. My goal in doing this is to remove myself from ongoing responsibility as trustee if the beneficiary and his attorney consent to the plan and have him sign a release in the event he should change his mind in the future and then try to hold me liable for breach of fiduciary duty.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

afan
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Re: Trust investment choices for a difficult beneficiary

Post by afan » Mon Apr 15, 2019 7:23 pm

From what you describe, it may not prevent the beneficiary from asking, but it would eliminate the OP's obligation to respond.

A lot of heavy lifting, but if it works, the beneficiary will get what he seems to want- control over his money without having to deal with the OP. The OP will be out of the trustee business, at least as far as the beneficiary is concerned (sounds like the family trust may continue without him?).
Wins all around. Beneficiary will sink or swim with the annuity payments, the house, and whatever other resources he may have.

Did I miss the part where the size of the annuity checks is reduced since the insurance trust will use some money to buy out half the house? Only the amount left will be available to invest in the annuity. Depending on the value of the house, that might be a big drop in income. Will it be less than what he is getting now?
We don't know how to beat the market on a risk-adjusted basis, and we don't know anyone that does know either | --Swedroe | We assume that markets are efficient, that prices are right | --Fama

Topic Author
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Mon Apr 15, 2019 7:39 pm

afan wrote:
Mon Apr 15, 2019 7:23 pm
From what you describe, it may not prevent the beneficiary from asking, but it would eliminate the OP's obligation to respond.

A lot of heavy lifting, but if it works, the beneficiary will get what he seems to want- control over his money without having to deal with the OP. The OP will be out of the trustee business, at least as far as the beneficiary is concerned (sounds like the family trust may continue without him?).
Wins all around. Beneficiary will sink or swim with the annuity payments, the house, and whatever other resources he may have.

Did I miss the part where the size of the annuity checks is reduced since the insurance trust will use some money to buy out half the house? Only the amount left will be available to invest in the annuity. Depending on the value of the house, that might be a big drop in income. Will it be less than what he is getting now? I will need to get an appraisal of the house but I believe it is worth about $180,000. The buyout would reduce the annuity payment by $5-6,000 so the payment would be about $53,000, still $15,000 more than he receives now.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

michaeljc70
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Re: Trust investment choices for a difficult beneficiary

Post by michaeljc70 » Mon Apr 15, 2019 8:14 pm

Sorry you're in this situation. What you are doing is fine to satisfy the terms of the trust (according to what has been said here). Given the hostility you are receiving I would be inclined to make no changes. If he doesn't want you to call him, I would respond in kind and ask them not to contact you to complain. Won't getting SS give them additional income and maybe ease the pressure on you?

Topic Author
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Tue Apr 16, 2019 7:24 am

michaeljc70 wrote:
Mon Apr 15, 2019 8:14 pm
Sorry you're in this situation. What you are doing is fine to satisfy the terms of the trust (according to what has been said here). Given the hostility you are receiving I would be inclined to make no changes. If he doesn't want you to call him, I would respond in kind and ask them not to contact you to complain. Won't getting SS give them additional income and maybe ease the pressure on you? Yes, he can take SS in a few months. My estimate is that at a minimum he would get $15,000/yr. I don't think he would ever be satisfied unless he got a full distribution from the trust. That is not what the grantor wanted obviously.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

gokartmozart
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Re: Trust investment choices for a difficult beneficiary

Post by gokartmozart » Tue Apr 16, 2019 1:56 pm

FBN2014 wrote:
Mon Apr 15, 2019 7:16 pm
... if the beneficiary and his attorney consent to the plan and have him sign a release ...
+1 on the release.

Get the attorneys on both sides to sign the release too. That makes it harder for the beneficiary to later claim, "Poor unsophisticated me was tricked into signing this release!" The attorneys will likely add some appropriate verbiage stating the attorneys themselves are not parties to the release, but read/drafted/approve the language.

MrsBDG
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Re: Trust investment choices for a difficult beneficiary

Post by MrsBDG » Mon Apr 22, 2019 9:52 pm

An in law's parents died over ten years ago, multiple siblings inherited their childhood home and they have allowed the ne'er do well sibling to live there, rent-free, for all these years. Why? None of the rest of the kids ever want that sibling to show up on their doorstep, homeless. It's really rough having a spendthrift sibling.

Topic Author
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Tue Apr 23, 2019 4:42 am

MrsBDG wrote:
Mon Apr 22, 2019 9:52 pm
An in law's parents died over ten years ago, multiple siblings inherited their childhood home and they have allowed the ne'er do well sibling to live there, rent-free, for all these years. Why? None of the rest of the kids ever want that sibling to show up on their doorstep, homeless. It's really rough having a spendthrift sibling.
This was one of my reasons also to allow my brother a free place to live. You would think such a person would be thankful. I wish.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

retiringwhen
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Re: Trust investment choices for a difficult beneficiary

Post by retiringwhen » Tue Apr 23, 2019 8:28 am

FBN2014 wrote:
Tue Apr 23, 2019 4:42 am
MrsBDG wrote:
Mon Apr 22, 2019 9:52 pm
An in law's parents died over ten years ago, multiple siblings inherited their childhood home and they have allowed the ne'er do well sibling to live there, rent-free, for all these years. Why? None of the rest of the kids ever want that sibling to show up on their doorstep, homeless. It's really rough having a spendthrift sibling.
This was one of my reasons also to allow my brother a free place to live. You would think such a person would be thankful. I wish.
Thanks for making this discussion happen. I am not in your place today, but family dynamics make this eventuality a distinct possibility in the next generation. I will take the problems and complexities here to heart in our own estate planning, by considering the challenges the trustee(s) will face with a uncooperative beneficiary.....

Topic Author
FBN2014
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Re: Trust investment choices for a difficult beneficiary

Post by FBN2014 » Tue Apr 23, 2019 8:38 am

retiringwhen wrote:
Tue Apr 23, 2019 8:28 am
FBN2014 wrote:
Tue Apr 23, 2019 4:42 am
MrsBDG wrote:
Mon Apr 22, 2019 9:52 pm
An in law's parents died over ten years ago, multiple siblings inherited their childhood home and they have allowed the ne'er do well sibling to live there, rent-free, for all these years. Why? None of the rest of the kids ever want that sibling to show up on their doorstep, homeless. It's really rough having a spendthrift sibling.
This was one of my reasons also to allow my brother a free place to live. You would think such a person would be thankful. I wish.
Thanks for making this discussion happen. I am not in your place today, but family dynamics make this eventuality a distinct possibility in the next generation. I will take the problems and complexities here to heart in our own estate planning, by considering the challenges the trustee(s) will face with a uncooperative beneficiary.....
Just a quick update on my progress with this situation. I spoke to the attorney about the legalities of using the immediate annuity for the beneficiary and life insuarnce for the remaindermen. He doesn't see any problems with using this strategy since the trusts specifically state that the trustee can purchase an annuity and life insurance. He definately recommends that the beneficiary use his own attorney and sign off on the plan to hold the trustee harmless should the beneficiary change his mind in te future. I wll be bringing up the proposal with my brother soon to gauge his feelings. One thing I will note is that for anyone looking to do estate planning and using a child as trustee for another sibling; you want to give the trustee as much flexibility as possible to deal with situations like this since you can never anticipate all of the issues that may arise.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

kacang
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Re: Trust investment choices for a difficult beneficiary

Post by kacang » Mon Apr 29, 2019 12:36 pm

Thank you OP for posting this. We are amending our trusts soon due to life changes, and this thread has been educational. Made us more aware of potential issues of sibling trustee.

bsteiner
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Re: Trust investment choices for a difficult beneficiary

Post by bsteiner » Mon Apr 29, 2019 9:37 pm

kacang wrote:
Mon Apr 29, 2019 12:36 pm
Thank you OP for posting this. We are amending our trusts soon due to life changes, and this thread has been educational. Made us more aware of potential issues of sibling trustee.
Depending on the situation, it can be difficult for one sibling to be a trustee for another sibling.
FBN2014 wrote:
Tue Apr 23, 2019 8:38 am
... I spoke to the attorney about the legalities of using the immediate annuity for the beneficiary and life insuarnce for the remaindermen. He doesn't see any problems with using this strategy since the trusts specifically state that the trustee can purchase an annuity and life insurance. ...
The issue is an economic one. Buying life insurance and an annuity is like betting on both teams in the same game, except the transaction costs are greater. While life insurance and annuities can serve a purpose, in each case the insurance protection comes at a substantial cost.

Unfortunately if there's no one available to take over as trustee there may not be any better choice.

barnaclebob
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Re: Trust investment choices for a difficult beneficiary

Post by barnaclebob » Tue Apr 30, 2019 10:02 am

FBN2014 wrote:
Thu Apr 11, 2019 7:41 pm
There are actually two trusts: family trust and insurance trust. The insurance trust has this wording regarding remaindermen: "The trustee is directed to conserve and accumulate the trust estate to the extent feasible , due to the unforeseeablity of the future needs of ________. However, accumulation or use of the trust is to be determined solely on the basis of the needs of ______, without regard to the interests of the remaindermen." The family trust does not have this language so the remaindermen would have to be considered unless they agreed with this strategy. There is also a small inherited IRA which pays out to the family trust as the beneficiary and is then distributed to the primary beneficiary, about $5,000/year and rising as the RMD increases. Your correct, the trustee would like to be relieved of this burden and a successor trustee is not likely to want to take this on once the history of the beneficiary is known: two foreclosures, a bankruptcy, 3 marriages, totally irresponsible with money. He would most likely use all the income from an annuity to get loans to buy a new truck, new house, etc. and then not pay the loans.
The first sentence of the insurance trust is very important. "The trustee is directed to conserve and accumulate" An annuity seems very counter to this.

Another key might be the legal definition of the word "needs". Are the beneficiaries current needs being met in context of the total value for the trust? Going to an annuity does not protect for future needs.

Since the beneficiary is difficult and you have a legal settlement in place. Why not fulfill the terms of the settlement and leave it at that. Don't engage in further conversation unless its initiated via subpoena. But if you want to be done with it and the attorney says its ok to do the annuity then go for it.

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